Car insurance is a vital part of every car owner’s journey. In fact, Malaysian car owners are legally required to have car insurance before you can renew your road tax. So if you think you can try and weasel your way out of getting insurance, then think again!
Most of us are likely to live with whatever insurance our car dealer provides for us. In fact, we probably don’t think too much about the premiums unless something happens.
The safety net
So why is car insurance so important anyway? Well, as we mentioned, it is mandatory to have one. Without a valid car insurance policy, you could even end up being sent to prison for up to three years under the Road Transport Act 1987.
Many tend to say that the cost of bearing car insurance can be a burden, and often cite this as a key reason to avoid getting insured. However, this is not a very strong argument. Generally, the damage to your vehicle and any persons involved when it comes to road-related incidents would very likely be much more expensive than the premiums you pay for.
Understand what type of coverage you need
The first thing you should probably do is to try and understand what kind of coverage you need for your vehicle. There are three main insurance types in Malaysia: third party, fire and theft (a.k.a. second party) and comprehensive cover.
All three types of coverage are generally the same, with some minor differences. These are:
Also known as the first party policy, has the widest coverage and will usually cover everything the other two types do. It also covers damage to yourself and your own vehicle.
Fire and Theft
Also known as the second party policy, similar to comprehensive insurance but will only cover damages to your vehicle if it catches fire or gets stolen.
The most basic type of insurance is also the cheapest, as it will only cover the other party’s costs if you’re involved in an accident.
Going the extra mile
After choosing your car insurance, there are usually a number of add-ons that you can get in addition to your main coverage. This is because there are still some things that your main car insurance will not cover, even if you choose a comprehensive insurance plan.
These additional add-ons give you the option to expand your coverage and customise your insurance to fit your needs.
For example, you can get a windscreen coverage add-on that can help you to replace or reimburse you for any damages to your vehicle’s windscreen. This may not be very important to most people, but for those who work in construction or near factories where there are many trucks carrying heavy loads, this can be invaluable.
It is most definitely unnecessary to have every insurance add-on. They simply exist to cater to each individual’s needs and circumstances. A few additional examples include:
Accessory theft coverage
General car insurance may cover you for the theft of your vehicle, but the accessories in your car are not usually covered. A car accessories add-on extends your coverage to include your car accessories such as navigation systems, rims, etc.
Special perils coverage
Although not as widely applicable as the first two, the Special Perils Coverage can save you a lot of money. By getting this additional insurance cover, you will be insured against damages due to natural disasters, such as earthquakes, sinkholes, landslides and floods etc. The additional cost for this coverage is around 0.5% of your sum insured.
Named driver coverage
This one is incredibly useful to have for families. A “Named Driver” is someone who can drive the insured car or vehicle with the owner’s permission and be covered by the insurance with the same privileges as the owner. This policy is relatively inexpensive and is very much worth it if you tend to share your car with family often. Certain policies even allow you to add named drivers for free, so take advantage of this benefit as much as possible if available.
Insuring based on market value vs agreed value
A car is susceptible to wear and tear, just like anything else. This means that the value of your car will deteriorate over time. Based on this, it can be a good idea to insure your car based on its market value. With this, you will receive a payout based on the market value of your car at the time of loss or theft. Depending on your vehicle’s age, how much it is used, and how much damage it has accumulated, its market value can vary greatly, so you can expect your insurance payout (and premiums) to get lower as the years go by.
For the most part, the average rate of depreciation for a vehicle ranges from 15 to 35 percent in the first year. This rate tends to increase exponentially each year, with a vehicle in it’s fifth year often having a depreciation rate of around 50% to 60%. Do note that these values are not set in stone, and depreciation rate can vary with use, damage, etc. Based on this, here is a short example of how depreciation is calculated:
|Calculation of depreciation
|Price of a brand new car: RM90,000
|Depreciation rate after 5 years: 55%
|Depreciation value: RM49,500
|Value of a 5-year old car: RM40,500
As you can see in the table above, a brand new car which costs RM90,000 may have a depreciation rate of 55% after 5 years. This means that the 5-year old car is only worth RM40,500, which is 45% of it’s original value.
On the other hand, you can opt to insure your vehicle based on agreed value. You will get the exact amount as agreed by your insurer when you renew your car insurance, and said amount will not be affected by the market value. The downside is that you will likely be paying for more expensive premiums since you have a guarantee that your payout will not be affected by market value.
Always look up service quality
As with most things, it pays to do your research beforehand. There are many car insurance providers to choose from, but not all are made equal. Do your due diligence and research online to choose an insurance company that offers 24/7 customer assistance. Accidents can happen anywhere and at any time. If an emergency suddenly pops up when you least expect it, it would be best if you had an insurance company that can be reached and respond immediately.
If you are not sure where to begin your search, iMoney’s car insurance directory is a good place to start. You can find it here.